Is it Really More Expensive to Get New Customers?

I don’t have the answer to this question mostly because it changes from industry to industry and organization to organization.  However, the question is valid.  As long as I have been in business (including time in college) I’ve heard a statement that goes something like “it costs [insert favorite number here] more times to get a new customer as it does to retain one”.  I have repeated it, as well as probably every one else in the world, as an unchangeable mantra of business. There have been studies that have confirmed this for different organizations or industries.

Yet, in all the work I have done in the last few years with plenty of organizations, no one has taken the time to make sure this did apply to their business model.  I can probably count in two hands the number of organizations that have used accurate customer acquisition costs and customer maintenance cost when making decisions on CRM, CEM, and Loyalty programs.  I prefer not to tell you how many of those calculations were updated periodically as business changed.

Even though we prefer to say it is cheaper to retain customers, it may not be.  A few things to consider.

Customer Acquisition Costs.  No matter how much you try, you won’t have a single acquisition cost model for your organization.  Each time you generate new business, you will have incurred different expenses. Where did the leads come from and how much did they cost? How did we reach out to prospects? What were the costs of the campaign? How much did we really spend internally – including training, systems alterations and customization – attempting to get new customers?  Each time you run a campaign the assumptions will change, and the calculations will change.  What if the prospects were already part of another campaign — are your going to add the costs for both campaigns??  It gets messy and complicated really fast, and without those calculations you don’t have a real cost of acquisition per customer.

Customer Maintenance Costs.   I have never met anyone who did a good job of calculating customer maintenance costs.  There are so many variables for each customer – even for each segment – that most organizations take a more “democratic” approach: the total cost of customer service operations divided  by the total number of customers.  Calculations should be done at the individual level, and consider each interaction, request, inquiry and final disposition for each interaction in relation to each customer.  While it is true that some customers will be virtually maintenance free, there are many others that are not.  Each time a new channel or service program is added, each time a customer contacts the organization for service or support the calculation should change. You cannot assign an average cost for all customers or you will miss the diamonds in the rough.

Finally, once you have your customer acquisition and maintenance cost for each customer you must use them to make your on service plans.  How?  We will talk about that in more detail in future blog entries… stay tuned!

Let me ask you first… what do you think of individual customer calculations? Are they worth doing?

The Uselessness of Granularity in Feedback Management

Warning, we are embarking on another of my pet peeves: granularity.  What?  You don’t know what I am talking about about? Let me explain myself.  Granularity is how detailed of a scale you use when ranking feedback.  For example, you could use a simple Boolean scale, like Yes or No.  You could also use numeric scales, say between one and five.  Finally, you could use word scales, like Horrible, Bad, Neutral, Good, Excellent.  Either way, the concept is that you give the respondent a scale of choices to base their response to a specific feedback question.

What could possibly be wrong with that?  Well, it is not the concept, but the implementation that gets me.  Same as with customer satisfaction and loyalty (you could click on these links for my previous rants on loyalty and satisfaction). The concept of giving people choices is good, as it creates way for them to express opinions on any topic.  It allows organizations to prioritize their efforts and focus on those that need more attention — a Horrible rating needs more attention than a Bad one.  Same thing for Good and Excellent.  See, the logic is good

The most common used scale until recently was one through five.  That is not that bad, really, except for the odd number of options (more on this later).  However, some “genius” somewhere decided that five options is not enough.  We need to give the customers a scale from one to ten for them to grade us.  They call that granularity and the flawed assumption is that more options will give the organization a deeper understanding of the true feelings of their customers.  There are two problems with this logic:

First, there are too many options. Customers are already hard to reach for qualified feedback, do you really want to add time to the survey – and so many choices for each question?  Consider a typical, not a good, customer satisfaction survey.  It has 12-15 questions.  Let’s assume that only nine of those questions have granular scales for answer.  In the time it takes a customer to decide whether questions number four and six deserve either a six or a seven the most likely outcome is that they will abandon the survey, or choose an answer without cause.

The worse part of this, when you get the responses you cluster the answers because there is no real difference between six, seven, and potentially eight – they all become one!  So the time you asked your customer to take to choose the best granular-scale response was wasted, and the decrease in response rates is actually justified.  Customers realized long before you did the uselessness of granularity – and they stopped responding to granular-scale questions.  Not really worth the unlikely benefit of getting better definition of their needs and demands.

I know what you are asking yourself: what scale should I use then?  A four-option, word scale: Poor, Bad, Good, Excellent.  Why four?  Remember when I said you did not want to have an odd number of options?  If you give customers five options, they will pick number three more often than not.  This is called, informally, fence-sitting and fulfills the purpose for customers to give you feedback but not take a position.  Was my service good? It was Neutral…what does Neutral mean?

Anyway, I am now getting off my soap box.  Let me part with some statistics.  Among the people I recommended using this scale, and adopted it, customer satisfaction was up an average of 8 points, and response rate scored consistently higher – not with just one survey, but over time with returning customers.

What do you think?  Are you going to try this?  Let me know your thoughts…

What To Do With The Feedback You Collect From Your Customers

It has been crazy and busy lately with EFM; I have been traveling the world spreading the word — and it has been so interesting.  It has amplified my views of EFM and given me lots of new ideas on what to do with this blog.  It has also given me an idea on spreading the word even faster: Twitter.  Do you twitter?  If not, you should check it out.  I am starting to spread the word on EFM via twitter — starting Monday October 13th, a new EFM insight a day via Twitter… tweet me!

I have been doing lots of thinking and working with EFM at the strategic level, and it led to me think about the need to implement EFM properly.  I am not simply talking about putting together a strategy for EFM, which I do endorse highly, but also where does it fit within the overall organizational approach to feedback.  In other words, why would an organization take on collecting, analyzing, and reporting on feedback?  After all, if you can do a survey and get some data – isn’t that enough?

Well, not quite.  The most interesting part of the question is actually what to do with the data and (more importantly) the insights collected and analyzed.  Yes, you can distribute a survey, collect some results, and report on them – even analyze them – and consider yourself done… but there is so much more.  Listen to this crazy, crazy approach to using EFM.

First, make a commitment to using feedback as valuable data.  That means you won’t just measure customer satisfaction, or yes / no to some inane questions that may, just may, earn you a bonus – but not create insights into your customers or products.  Make a commitment to using feedback wisely as a strategy, collecting and analyzing key business metrics over time.  Once you do this, you have the basis for the second step… building a dashboard.

Dashboards? how can they be related to feedback?  Well, you could build a dashboard simply by using efficiency metrics (number of calls, average handle time, average wait time, etc.), but wouldn’t you want to build one that means something for your business?  If you strategically determine the metrics that matter about your business, your services, your products — and the effectiveness-based metrics you must follow for the health of your business, you can then prepare a great real-time dashboard that shows you the health of your business — and tie those metrics to the feedback you collect!

Alas, once you create a real-time view of your important metrics, and use feedback to populate that – what about the long-term view?  Glad you asked (OK, you didn’t, I did).  Once you have a real-time, short-term view of your business it is time to make the jump to long-term, strategic measurement.  The tool we use for that is a scorecard.  Ah, yes… the scorecard.  You can use feedback to measure your key metrics over time, spot historical trends, and see where you have to invest time and resources to improve your products, services and resources.  And the best part?  You get to do this as your improve your use of feedback – from taking surveys, to adopting EFM, to implementing Dashboards and Scorecards.

How About Feedback From Passive Customers? Huh?

I have been working on some research this week, trying to improve my three-layer model for feedback management which relies on point-of-delivery, customer-satisfaction, and planning feedback events.  See, for the most part I have been using it with clients to help them deploy feedback management strategies, mostly for support scenarios (it can be adapted to many situations, more on that another day).  We have been assuming all this time that if we survey the people who interacted with us, we actually have a very good representation of the issues and feelings from our customers.

Now, this has worked very well in the past for lots of clients I helped.  Their improvements in retention, delivery effectiveness, and (gulp) loyalty have been impressive (I did not recommend the loyalty measurement – sorta snack in).  However, I could not stop from thinking in the back of my mind I was missing something.  Well, today as I was reading several articles, blogs, and journals about satisfaction, loyalty, feedback management, etc. when I had THE epiphany — I have been ignoring passive customers.

What are passive customers? Glad you asked In all customer populations there is a small group (between 5-10 percent usually) that you almost don’t know you have.  These are the companies (B2B scenarios), or customers (B2C) that bought your product or service, use it all the time, and never require service (or self-support themselves through your self-service initiative).  These are the non-squeaky wheels – the ones no one pays attention to.  In words of loyalty and satisfaction, these are satisfied, loyal, long-term customers that we have no risk of losing unless we totally screw up — and even then, they are likely to call and get their problem fixed, since they never called before.  These are your safe customers.

Since you know me, you also know I am going to say something different.  Something like “these are not safe customers”, or “you cannot take them for granted just because they don’t interact directly”.  Alas, I wont’ say anything like that.  What I will do is ask you a question: what is the value of these passive customers to you?  What?!?!?? You don’t know?  Tsk-tsk-tsk… shame on you.

See, these passive customers for the most part don’t matter much to your organization.  They tend to be content with the product or service, they will upgrade or make incremental purchase decisions mostly on their own, and they just want to have a peaceful existence with what you offer.  In other words, they do tend to be safe,  Hard to lose them – unless you are trying.  However, their value to you is what you really need to know.  One by one, you need to know whether they are a top-tier customer or not, and what would their departure mean to you.  Then, you need to get their feedback – find out what makes them stay, what would make them go, and what you need to do to keep them where they are.  It is easier than you think, all you have to do is ask — we will cover in my next entry how to ask.

Are you taking care of your passive customers? Huh?

how to make sure your customer service is the best, and your customers remain yours

First, the acknowledgment… I wrote this for a presentation I am doing next week at the DestinationCRM conference.  Yes, it is my original material but it is not just for this blog… then again, we’ll see if I get more readers here or people at the conference next week.

As I started getting my presentation ready for the conference, I got to the same point where creativity begins: reading the abstract that was submitted, trying to understand what possessed me to write that, and wondering how am I going to deliver on that promise.  Then I started thinking… I promised to talk about service experiences – how breaking down customer experience management projects into “chunks” makes it more manageable.  Since I am not sure I can cover an entire presentation on that yet, I decided to instead focus on service experiences… but come to it from a Top-10 approach.  Yes, I have taken tons of poetic license from David Letterman’s approach to the Top-10 – not even close.  So, without much further – here are my “ten killer ways to make sure you service experiences are the best and your customers remain yours” (the official title):

1. right channel, right time – always ensure you are offering to your customers all channels they want to use, how they want to use them, and when they want to use them

2. right person, right time – use workforce management to manage your people, their skills, their training, and their careers – ensuring that each inquiry is answered by the best person to do it

3. right answer, right time (yes, there is a pattern) – optimize your knowledge management and repositories to ensure that each agent, client, and system interacting with clients automatically always have the right, and similar, answer

4. right experience, right? – implement an efm initiative to manage feedback from customers and agents, geared to improving and presenting the right experience, all the time to all customers

5. improve, reduce, discard – use analytics across all interactions, to make sure your processes are working properly, optimize them by improving poor performance, reducing unnecessary steps, and discarding non-working ones

6. constant monitoring, continuous improvement – manage by KPI – no, not Key Performance Indicators.  Instead focus on Knowledge, People, and Inquiries – focus on them and your experiences will be superb

7. metrics, choose wisely – don’t use old and tired efficiency metrics (satisfaction, loyalty, handle time, hold time, total calls, response time, etc) instead use the new effectiveness-based metrics to ensure great experiences (did you get what you needed? did we do a good job delivering?)

8. evaluate new, don’t implement… yet – unless you are in an industry where competitive advantage is a mandate (not many), implementing brand new technologies will only cost you money and resources.  Implement in the second wave and you will reap more benefits (this has a killer graph to go with it, email me for a copy of the slides)

9. know expectations, surpass expectations – use feedback tools and events to capture and understand your customer expectations; modify your processes to accommodate them; write SLAs to make sure you surpass them

10. MAKE MONEY – sales is a dish best served piping hot — you are in the hottest moment to recommend, offer, and sell to your customers… right when they need it!  Leverage it.  You’ll be surprised to see how many other problems disappear when you make money for the organization.

So, what do you think?  Did I miss any?  Do you agree or disagree?  What do you think of Service Experiences? let me know… and remember to email me if you want a copy of the slides…

Mind the Gap, Would you?

Continuing my one-man crusade to end the use of customer satisfaction as a metric in corporations, I want to bring attention today to one more problem: The Gap.

What gap you ask?  Well, the gap that exists between customer satisfaction and customer churn – that gap.

There are two  KPI (key performance indicators) for organizations dealing with customers.  One is customer satisfaction (are you satisfied, did we meet your expectations, etc.).  The other is customer churn – or the rate at which customers leave you and go to the competition.  Customer churn is trickier to measure (after all, a customer could have no need for your product or service, or they could be passive users and not interact for quite some time) but it is measured usually as a percentage of closed accounts.

As the logic goes, an increase in customer satisfaction should mean a decrease in customer churn – and the other way around should be also true.  After all, a satisfied customer is not likely to leave – right?

Well, this is the part where customer satisfaction (the metric) does not reflect reality. According to lots and lots of recent research – although customers say that customer service is their number one reason for changing providers, further analysis details that price is a more important driver than satisfaction.  Actually, satisfaction comes up between fifth and tenth in the different studies. I wrote a blog about this not too long ago, you can read it here.  If you insist in using customer satisfaction as a metric, fine – but please do it together with customer churn and… mind the gap.

Let’s look at an example.  Let’s say your customer satisfaction is 80%, and your customer churn is 30% (that means you loose 30% of your customer base every year).  That leaves a ratio of 10 – 80% satisfaction, 70% of “satisfied” customers per the churn metric – deduct satisfaction from churn and you get the ratio.

if you have a negative ratio it means your churn is greater than your dissatisfied customers and there are more people leaving you that telling you they are not happy.  Implement better feedback management tools, ensure that all complaints are handled effectively, and advertise (heavily) your commitment to customer care and to make customers happy.  Look at your prices, products, features and functions and make sure they are aligned with your competitors.  Advertise that as well. Find out, via surveys, why customers left recently and use that to improve your processes, offerings and services. If you are honest and good about it, you shall see more customers trusting you to solve their issues and wanting to stay – thus decreasing your churn and turning the ratio positive.

If you have a positive ratio it means either you are doing things well, or you are not measuring properly.  The larger the ratio, the more likely one of your metrics is not accurate.  Ideally your churn and your dissatisfied number will be the same — but very unlikely.  You want them to be within one or two points to account for all errors in computing and measuring. So if you have a large positive ratio either your customer satisfaction metric is too high, or your customer churn too low.  You should revise the metrics, what they measure, how the data is captured and the methodology behind each.  You are more likely to find problems measuring customer churn than satisfaction – but both are possible.  Fix your measuring problems and then try again.

What do you think?  Interesting enough to try? Let me know whaty you think… and please, mind the gap – would you.

Loyalty? We don't need no Customer Loyalty

That is the truth – organizations that focused on customer loyalty are taking the wrong path to customer retention.  Mea culpa, I was one of those people who saw Customer Loyalty as the end-all for customer service.  If you could just achieve high levels of loyalty, the idea goes, you won’t have to worry about customer retention.  I have since learned through work I have done with several clients, that loyalty carries no reward with it.  There is no higher wallet-share, there is no higher likelihood of repeat purchases — there is nothing that foretells that Customer Loyalty helps an organization, and plenty to show otherwise.

Maria Palma wrote in her blog (Customers Are Always) a couple of days ago that Bargains and Deals may just trump customer loyalty.  I commented in that blog that loyalty only brings up your cost of customer maintenance, and it does not provide you with the benefits you expect.  Let me expand on that.  Customer Loyalty and Customer Satisfaction are similar concepts: they rely on feelings that are not easy to manage or control, are expensive and cumbersome to measure appropriately, and they have not really shown any correlation between what they cost and the benefits they bring.  It is just another way to look at a customer feeling about a company, instead of a product or experience, that cannot be used to predict future behavior.

In the movie “Nothing in Common” Jackie Gleason plays an older salesperson who prides himself in having the best relationships with his clients.  They all admire him, respect him, and have great loyalty towards him.  Early in the movie, a brash young new VP of sales calls him into his office to discuss his performance.  He is truly impressed by the relationship he has with his clients, but when he looks at the performance he is dismayed.  Abysmal sales numbers have been trickling in for the last few years.  Turns out all his clients are now buying from the competition because they have better shipping policies and cheaper prices.  So much for loyalty, and for Jackie’s job.

I said it before, and I will say it again.  Don’t focus your metrics on your customer’s feelings.  Instead, focus on what matters. There are three things you can do to ignore customer satisfaction and customer loyalty and come out ahead:

1.  Build a solid infrastructure (technologies and processes) to deliver great customer experiences across channels.

2.  Extend it to include feedback, sales, marketing, operations, and to create end-to-end commendable customer experiences

3.  Ensure that the delivery of your experiences meet customer expectations, and use expectations to improve your delivery

Then, you won’t have to worry about loyalty, satisfaction, or anything like that.  Then you will be able to simply focus on doing the best possible job for your customers – and get rewarded for it.

Are you focusing on the right metrics? Are you doing the right thing?

How to Score a 90% or more Customer Satisfaction

Lots have been said about customer satisfaction see at the end of this entry for entries on this blog about customer satisfaction).  Organizations struggle to get their customer satisfaction scores under control, they “need” or want to get them to a certain number (for some reason, 76% seems to be the magical number most of them are trying to reach today, slightly lower than the 80% we saw couple of years ago).

Tons of money, time, and resources are piled into these projects.  None of them realize the poor value of customer satisfaction as a stand-alone score.  I have been saying for quite some time that customer satisfaction does not rank very high in the list of metrics you should follow — yet, I get more and more requests everyday on how to calculate it and use it.  As a Public Service I am going to give you four secrets on how to score higher in customer satisfaction surveys:

1. Know who to survey. what happens if you ask someone who is disgruntled or unhappy? there goes your customer satisfaction score down the drain. Know your customers, segment them, and pick the segment that is likely to return higher scores.  Survey them.  In any customer base there is always a 8-10% that would give you high scores regardless of what you do, another 10-15% or so will never like you no matter what.  There is also 20-30% that don’t like to give low scores in surveys.  Find out who the first and last group are and try to survey them and not the others.

2. Select the words for your questions carefully. There are many books written on how to ask questions for surveys, comparing the different words you use and the results you get.  You see this being used in political surveys all the time: using support vs. agree, think vs. feel, and many more.  Truth is, how you write the question will bias the answer you get.  People react different when you use “think” instead of “feel”.  Psychologically, they feel that feelings are more private and their reaction is to guard their feelings by lowering scores so you don’t know how they feel.  They tend to give you higher scores when you ask for their thoughts.

3. Change the scale for your metrics. Feedback “experts” will tell you that using smaller scales (e.g. from one through five)  will give you less granularity into your answers.  It will also give you higher scores.  Customers are not inherently out to give you poor scores, but the more choices they have the more likely they are to split hairs.  In smaller scales it is easier to get to an 80% of satisfaction, since that is only 2 out of 5 scores, than in a larger scale where it is 3 out of 10.  Using numbers instead of words (such as agree or disagree with their different variations) will give you higher scores; call it human nature, but we don’t like to agree.

4. Coerce higher scores. If you offer a prize or a drawing as a result of the feedback your customers provide, you are bound to have higher scores.  Respondents have the feeling that if they are “nicer” to you they have a higher chance of winning.  They believe that if they give you lower scores you will throw away their entry and they won’t qualify for the contest or drawing.  This is mostly because they don’t understand the value of the feedback they provide, and the benefit for them of being honest: they are after the money.

What is that? Manipulation?  Absolutely, no questions about it.  See why you should not use this metric? It is not going to improve your relationships with your customer, guide your customer service changes appropriately, or make you more liked by your customers.  Actually, if you rely on this metric to guide your operations you are likely to loose more customers this way.  Use with caution, good measure, and within a metrics program that looks at other metrics to make sure you don’t over-rely on it.

Are you still using customer satisfaction as a metric? Did I convince you otherwise?

Links to Customer Satisfaction Entries

Hire More Customer Service Representatives for Free

Customers demand more – more features, more service, more representatives.  You look at what you can do within your budgeting constraints and probably want to start crying.  Not much more you can do, or afford to do; least of all, bring in more people.  Certainly, other corporations are doing better than you – right?

Well, No. Everyone is asking the same question: how can we grow the number of customers without increasing the number of representatives or the cost for customer maintenance.  Alas, leading corporations began to realize in the last 12 months what it takes to achieve this difficult balance.  Hire more customer service representatives.  Lots more… like millions of them.

That’s right.  You can get as many more customer service representatives as you want – for free.  Yes, FREE.  Impossible you say?  Unlikely you express? (OK, I ran out of synonyms without checking the thesaurus).  Nay.  Easier than you think.  The answer is simple: empower your customers to become customer service representatives.  There are three steps to get there:

First, find the right interactions.  Comb your logs, ask your agents.  What is the largest number of interactions that your customers could solve on their own? Changing an address? Establishing new service? Getting a refund?  In the early days of web self-service, AT&T Wireless (the old one, not this one) leaped ahead of their competitors by offering the ability to claim credits for dropped calls automatically through a web interface.  The saved lots of time and money and (more important) lots of CSRs time to take on other tasks.  No interaction is too complex or too simple if you can figure out how to automate it.

Which brings us to step two. Automate, entirely and completely, the chosen interactions.  That means there is no human check at the end of the process to ensure it is correct.  You write all the business rules and exceptions for processing, feed them into a rules server, test them.  Then flip the switch.  The computer will now handle those interactions for you – and kick out the exceptions you want or need.  Your only job is to monitor the results periodically and tighten the rules and exceptions as you go along.  Can you imagine the savings if you deflect all those interactions from the phone?

Right about now your question is – will people use it?  Well, here is where it depends on you – our third step. Advertise, advertise, advertise.  “Force” customers to use the system (that means make it simple, available, and advertise it all over).  Make it a service differentiator.  Make it part of your brand.  Let them know the benefits, incentivize them to use it.  Make sure it performs flawlessly each time – and that necessary handling of exceptions is above average for speed and satisfaction (i.r. err on the side of the customer).

Guess what?  You just hired millions of new CSRs towork for FREE.  What do you think?

Tired of Web 2.0? Try Service 2.0 for size

Back in the old days of the Internet, when money was free and ideas plentiful, a few friends asked me if there was something new and different that I thought was ready to be discovered, transformed into a product, created into an IPO, and worth millions of dollars. I said I was not sure about the millions, but there had been something bouncing around in my head for a while. I called it, at that time, “point-of-need customer service” (Yes, seven years at Gartner improved – but not perfected – my naming skills). We created a pilot product, deployed it – and amazingly enough people wanted it and it worked. Of course, this was about the time the air was let out of the bubble, so the lack of funding made it impossible to continue the endeavor, which coupled with my wife’s insistence that I get a “real job” took me to Gartner.

The concept behind “point-of-need customer service” was that the browser is a clunky, stateless, session-driven interface that, to keep constantly providing service and support to customers required lengthy and complex programming, integration, and adaptation to many, many operating systems and computers. The concept I had was a unique, non-browser type application that was constantly in contact with service providers, proactively providing customer service and support to clients. The money-making portion was to sell to providers the infrastructure to service those devices, and “viral distribution” for free of the devices or applets would take care of the rest. As I said, it did not go far due to lack of funding.

Fast forward some time, and while at Gartner I proposed the idea of the Customer Interaction Hub (yes, this was the best name we could agree on – I told you it was better but not perfect). This basically became the infrastructure component that each organization could deploy to use browsers as “point-of-need” service applets. I sorta gave up on the idea of replacing the browser, as it had become as ubiquitous as operating systems in computers. I still, for the record, believe that the browser is a lousy interface… but my Don Quixote days are over, so let’s embrace it!

So, on to the concept of where we started: Service 2.0. If you are wondering where the next “thing” (or the new, new thing as Michael Lewis put it) is start to look into how to expand your Web 2.0 investments into Service 2.0. Think about the characteristics of Web 2.0: proactive, effective, low cost, high-volume, point-of-need… doesn’t it sound like that Customer Service strategy you have been working on? Some of these things already exist and are implemented (one of our clients, Symantec, does first-level troubleshooting of problems in the computer itself – without using the browser), others are infrastructure components (like device relationship management components embedded in medical and industrial machines that alert to service needs, troubleshoot, and even scheduled service calls automatically) already in place… but the whole idea revolves around three core concepts of both Web 2.0 – and your service strategy: automation, decentralization, and proactivity.

All the elements of a winning Service 2.0 strategy.

What do you think? Ready to embrace the future? Are you planning your Service 2.0 infrastructure?

the blog!

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